Economy

Jobs, Services Data Suggest Economy Stepped Up In Dec.

December private hiring and service sector growth were the strongest in years, according to separate reports Wednesday, further evidence that the economy was gathering steam heading into 2011.

The Institute for Supply Management's service sector index rose 2.1 points to 57.1, the highest since May 2006. Wall Street had expected a smaller increase to 55.7. Readings above 50 indicate growth.

Meanwhile, private firms on net hired 297,000 employees last month, the most since records began in 2000, according to ADP Employer Services. That almost tripled estimates for 100,000.

"The early part of the recovery has been focused on manufacturing, and we're seeing that momentum broadening out to the service sector and other parts of the economy," said Robert Dye, an economist at PNC Financial. "It looks like the pieces of a self-sustaining economic expansion are coming into place."

Yet Federal Reserve policymakers have vowed to press ahead with a $600 billion bond-buying program to stimulate the economy amid concerns that growth will remain too sluggish to quickly bring down the jobless rate.

ADP showed broad-based gains in hiring, from small businesses to large firms and from the service sector to manufacturing.

That bodes well for Friday's Labor Department employment report. Economists predict that will show public and private employers hired a net 150,000 in December, the third straight gain. The jobless rate is seen ticking down to 9.7%.

"It remains to be seen whether big jumps like that (in the ADP report) are the rule or the exception," said Mike Schenk, vice president of economics and statistics at the Credit Union National Association and Affiliates. "Our view is that labor markets will be improving, but doing so slowly."

He said the jobless rate will remain above 9% through 2011 despite his forecast for 3% economic growth. That's partly due to a skills mismatch between the jobs available and the people looking for work, he said, adding that unskilled former manufacturing and construction workers face an especially difficult job search.

ISM's new orders gauge jumped 5.3 points to 63, the best in more than four years. The prices paid subindex soared 6.8 points to 70, the highest since September 2008. But companies are having trouble passing on higher costs to cash-strapped consumers.

"Consumer prices remain well contained outside monthly fluctuations in energy and food," Dye said, adding that company profits will likely suffer due to an inability to pass higher commodity costs on to shoppers.

Shares of Family Dollar (FDO) dived 9% Wednesday after its Q1 results missed views amid rising costs and the discounter gave a weak Q2 outlook. BJ's Wholesale Club (BJ) said December sales fell short of estimates and unveiled plans to cut hundreds of jobs and close five stores by the end of this month.